Question

Hamilton Hawks Players’ Association and Mr. Sideline, the CEO and majority owner of Hamilton Hawks Soccer, Inc, ask your help in resolving a salary dispute. Mr. Sideline presents the following income statement to the players’ representatives.

HAMILTON HAWKS SOCCER, INC. Income Statement
Ticket revenues		$ 3,500,000
Stadium rent expense	$2,500,000
Ticket expense	30,000
Promotion expense	80,000
Player salaries	700,000
Staff salaries and miscellaneous	?265,000	3,575,000
?Net income (loss)		$ (75,000)

The players contend that their salaries are below market and a raise is warranted. Mr. Sideline argues that the Hamilton Hawks really lose money and, until ticket revenues increase, a salary hike is out of the question.

As a result of your inquiry, you discover that Hamilton Hawks Soccer Company owns 85 percent of the voting stock in Hawks Stadium, Inc. This venue is specifically designed for soccer and is where the Hawks play their entire home game schedule. However, Mr. Sideline does not wish to consider the profits of Hawks Stadium in the negotiations with the players. He claims that “the stadium is really a separate business entity that was purchased separately from the team and therefore does not concern the players. On top of that, we allocate all the ticket revenues to the team’s income statement."

The Hawks Stadium income statement appears as follows:

HAWKS STADIUM, INC. Income Statement
Stadium rent revenue	$2,500,000
Concession revenue	875,000
Parking revenue	? ?95,000	$3,470,000
Cost of goods sold	270,000
Depreciation expense	90,000
Grounds maintenance expense	410,000
Staff salaries and miscellaneous	??200,000	? 970,000
?Net income (loss)		$2,500,000

Required

What advice would you provide the negotiating parties regarding the issue of considering the Hawks Stadium income statement in their discussions? What authoritative literature could you cite in supporting your advice?

What other pertinent information would you need to provide a specific recommendation regarding players’ salaries?

Answer 1

HAMILTON HAWKS SOCCER, INC has to consider the HAWKS STADIUM, INC. income statement in their books since soccer incorporation has 85% voting Power in Stadium Inc so that Players Salary can be accrued and will be paid once Income from Stadium Inc is realised and there is no need to increase Ticket revenue only for the sake of paying salary to players. Even thogh stadium is separate Business entity Profits from the Investment company shall be considered for consolidation purpose